TOKYO (Reuters) - Prime Minister Shinzo Abe will likely push with fresh urgency next year a bid to ease legal limits on the Japanese military's ability to fight shoulder to shoulder with allies overseas, a goal that eluded him in his first troubled term.

Lifting Japan's self-imposed ban on exercising the right of collective self-defense would mark a major turning point for Japan's post-war security policy and could increase tensions in the region, where a row over tiny uninhabited islands in the East China Sea encapsulates growing Sino-Japanese mistrust.

Since its World War Two defeat in 1945, Japan's military has not engaged in combat. However, successive governments have stretched the limits of the U.S.-drafted, pacifist constitution to allow non-combat missions abroad.

Abe -- whose first term as premier ended when he abruptly quit in 2007 due to parliamentary deadlock and ill health -- returned in triumph a year ago this month, pledging to revive Japan's stagnant economy and bolster its global security clout.

"Although there is no national election scheduled until 2016, if he doesn't resolve various issues in parliament next year, momentum will falter and he will run out of time," said Hokkaido University professor Jiro Yamaguchi.

"Abe probably feels strongly that next year will be the last chance to implement his long-held goals."

Until last month, Abe's popularity ratings were above 60 percent, rare for a Japanese leader after a year in office, thanks to an economic recovery and buoyant stock prices which were in turn fuelled by hyper-easy monetary policy, a pillar of his "Abenomics" growth agenda.

Last month he achieved one cherished goal in his conservative agenda when parliament enacted a law to create a National Security Council, which will concentrate control over security and diplomatic policies in the prime minister's hands.

A first-ever National Security Strategy to be approved next Tuesday will underscore Abe's push to bolster the military and raise Japan's security profile in the face of a rising China.

Public concerns in Japan about China's growing military assertiveness have so far provided support for Abe's stance.

Abe's support, however, slid to about 50 percent this month after his ruling bloc steamrolled through parliament a strict state secrets act that the government says is vital to persuade allies to share intelligence. Critics, however, say it echoes Japan's wartime authoritarian regime and will muzzle the media.

Ironically, the drop in opinion polls -- plus fears of an economic relapse after the national 5 percent sales tax rises to 8 percent in April -- may encourage the Japanese leader to push for the change rather than wait and risk further declines that would undercut his clout in his own party, some experts said.

"You should not forget that the strength of Abe comes not from his conservative agenda but from his management of the economy," said a former government official. "An economic downturn could change that picture."

Another sales tax hike to 10 percent, to rein in Japan's huge public debt, is slated for 2015 and would be especially controversial if the economy sags, sapping political energy.

WARY DOMESTIC ALLY

"If he pushes it (lifting the ban) through, it will be disastrous but it is quite likely that he will," said lawmaker Seiichiro Murakami. A rare outspoken critic of Abe in the ruling Liberal Democratic Party, Murakami predicts that steamrolling controversial security policies risks sparking a voter backlash, especially if the economy stumbles.

"The state secrets act, the National Security Council, collective self-defense and a revision of U.S.-Japan defense co-operation guidelines are a package," he added. Tokyo and Washington have agreed to update guidelines on how their militaries interact by the end of next year.

Still, a continued fall in support ratings would complicate Abe's efforts but would not deter him.

"There will be no change in his stance, but the problems have increased," said former defense official Kyouji Yanagisawa. "If he rushes, criticism will emerge from inside the ruling parties," added Yanagisawa, who handled security matters at the prime minister's office during Abe's first term.

Abe's high popularity rates have been a key factor silencing potential critics in the ruling bloc. Critics have said lifting the ban is more likely to mean Japan gets involved in armed conflicts overseas that put Japanese lives at risk.

A panel of Abe advisers is set to urge Japan to lift the ban in a report next year, a change the United States would welcome as a way for Tokyo to take on more of the burden for the alliance but that China would likely see as a disturbing sign Japan wants to flex its military muscle.

Tensions between the two Asian rivals spiked last month after China announced a new air defense zone that overlapped with air space above disputed isles in the East China Sea.

The report by Abe's advisers, however, has been delayed until after the passage of the budget for the year from April because his junior coalition partner, the more dovish New Komeito, is wary.

The party, which gets most of its votes from a lay Buddhist group, has a track record of compromising to stay in power, but how far it is prepared to bend this time is unclear. "For the New Komeito, its stance as a peace party is fundamental. They cannot reject that," Yanagisawa said. "The question is, to what extent can the New Komeito make its views felt."

If Abe can persuade the New Komeito to sign off and thus gain cabinet approval, the government would need to submit to parliament bills to provide a legal basis for the change.

Liberal media and intellectuals would probably try to rally public opinion against the change, but many in the opposition Democratic Party and smaller parties support lifting the ban.

"It is important to have a more effective framework for Japan-U.S. (military) operations, including collective self-defense," said Democratic Party lawmaker Seiji Maehara, a former foreign minister. (Editing by Neil Fullick and Mark Bendeich)